I'm an award-winning journalist with a particular interest in for-profit social enterprise, as well as entrepreneurship and small business in general. I've covered those areas for many many places, including The New York Times, Bloomberg Businessweek, Crain's New York Business, Inc. and Business Insider. As an entrepreneurial journalist--ie, a freelancer--I work from my home office in Pelham, NY.

Is the Insurance Industry Clueless about the Risks Posed by Climate Change?

(LONG BEACH, NY - JANUARY 05: A man stands before the remains of the Long Beach boardwalk as hundreds of residents of Long Beach, Long Island attend a 'goodbye' ceremony for the town's historic wooden boardwalk, which was badly damaged in Hurricane Sandy, on January 5, 2013 in Long Beach, New York. Residents were given a final opportunity to say goodbye to the landmark boardwalk and to take a piece home before it was to be demolished and eventually replaced with a new boardwalk. The demolition is expected to take about a month. (Image credit: Getty Images via @daylife)

This post isn’t about social enterprises per se, but an issue at the heart of many such companies–sustainability. Specifically, this is about a sobering study just released by the organization Ceres showing just how badly prepared insurers are to address risks from climate change.

Clueless might be the better way to describe them.

Just as a disclosure, I live in New York, so post-Sandy, the topic still is very much on my mind. And in case you didn’t know, 2012 had the second most extreme weather in U.S. history.

The survey, developed by the National Association of Insurance Commissioners in 2012, looks at the responses of 184 insurers writing in excess of $300 million in direct written premiums doing business in California, New York and Washington . They were required by regulators to disclose their climate-related risks.

So, because just about every major U.S. insurer operates in those states, the results provide a pretty good feel for just how well prepared the industry is to deal with the inevitable catastrophes, or just difficulties, caused by climate change.

Here’s what the report found: “In general, almost all companies responding to the survey show significant weakness in their preparedness to address the effects climate change may have on their business.” In fact, in some cases, insurers view the issue as one that’s basically immaterial to their business. And some even expressed ambivalence about the science of climate change.

Only 23 companies have a comprehensive strategy; 13 are foreign-owned.

Oy vey.

Some findings:

Property and casualty insurers tend to be further along in addressing climate change risk. But they also seem to address managing climate variability, not climate change. Few health insurers seem particularly worried about the issue. (Let’s see how they change their tune when people start getting weird illnesses from, say, insects that don’t normally live in certain areas).

The motivators causing companies to do something include: cost efficiencies from reducing energy; security, especially claims from extreme weather events affecting insurers’ own operations; concern about emergent risks (as opposed to the extreme weather events happening in the here and now); the reputational brownie points companies get from having sustainability programs; and client exposure to climate change, ranging from the impact of carbon regulation to damage to clients’ assets.

The biggest weather concern is about hurricanes. There also was some concern about wildfires and convective storms that produce tornadoes, thunderstorms and other undesirable weather events.

Insurers have a remarkably inward-looking focus, with little effort expended to engage regulators, policymakers and others. Some large life and annuity companies have investment products aimed at low-carbon technologies. But that’s mostly been done by multinationals based outside the U.S.

The report urges regulators to continue to mandate annual public disclosures, but also to provide more guidance in just what information insurers need to disclose. Also, industry examiners should be encouraged to include climate-related questions during the evaluations that take place every three to five years.

“By requiring insurers to disclose information about whether and how they are integrating climate risk into their operations, they must reckon with important new forces buffeting the industry and become stronger and more resilient in the process,” says the report.

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